VanMannen Foundations, Inc ​
-Refer to the Data for VanMannen Foundations, Inc

question 6

Short Answer

VanMannen Foundations, Inc.(VF)
VanMannen Foundations, Inc.(VF) is a zero-growth company that currently has zero debt, and it has the data shown below.
$\begin{array}{lr}\text { EBIT }= & \$ 80,000 \\\text { Growth }= & 0 \% \\\text { Orig cost of equity, } r_{s}= & 10.0 \%\\\text { No. of shares }= & 10,000 \\\text { Price per share }= & \$ 60.00 \\\text { Tax rate }= & 25 \%\end{array}$ ​
-Refer to the data for VanMannen Foundations, Inc.(VF).Now the company is considering using some debt, moving to the market value capital structure indicated below.The money raised would be used to repurchase stock.It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise somewhat, as indicated below.If this plan were carried out, what would be VF's new WACC and its new value of operations? ?
? $\begin{array} { l l } \text { New interest rate } = \mathrm { r } _ { \mathrm { d } } = & 6.00 \% \\ \text { New cost of equity } = \mathrm { r } _ { \mathrm { s } } = & 10.75 \% \\ \text { New Debt } / \text { Value } = \mathrm { w } _ { \mathrm { d } } = & 20 \% \\ \text { New Equity } / \text { Value } = \mathrm { w } _ { \mathrm { s } } = & 80 \% \end{array}$

$\underline{ \text { WACC } } \quad \underline { \text { Value } }$
a. $9.50 \% \quad\$ 631,579$
b. $9.80 \% \quad \$ 644,211$
c. $10.10 \% \quad \$ 657,095$
d. $10.40 \% \quad \$ 670,237$
e. $10.70 \% \quad \$ 683,641$

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Policy choices made based on thorough understanding and evaluation of relevant information, evidence, and potential outcomes.

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Cash Crop

Agricultural produce grown primarily for sale to return a profit, rather than for personal consumption or sustenance farming.